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Morgan Stanley Cuts Target On Honeywell, Keeps As A Top Pick

Morgan Stanley Cuts Target On Honeywell, Keeps As A Top Pick

Close on the heels of Honeywell International Inc. (NYSE: HON) offering a downbeat guidance, Morgan Stanley slashed its target price on the stock from $127 to $124. However, the firm believes that the stock is still a top pick and retained an Overweight rating despite concerns over a CEO transition.

While admitting that the negative pre-announcement was an unexpected one, analysts Nigel Coe and Jiayan Zhou think that operational deterioration fueled by project deferrals and a weak market for a commercial helicopter were behind the company's soft outlook. Aside from that, margins faced pressures from the rich margin mix for the products of short cycle.

As far as the outlook is concerned, the brokerage believes that Honeywell's growth forecast is reasonable for fourth quarter citing easier comparisons with the year-ago period. The firm thinks that the fourth quarter EPS forecast of $1.74–$1.78 is in line with the seasonality.

Related Link: Guidance Adjustments From Honeywell Reinforce Concerns At Credit Suisse

For the year 2017, analysts viewed in a research note, "With ~18c of incremental restructuring savings and 3c lower interest expense (as a result of debt refinancing net of Intelligrated related financing costs) largely offsetting a lower 2016 base (-3c) and reduced core growth assumption of up 1–3 percent (vs. up 2–4 percent prior, primarily due to downside within Aerospace, while management has guided for a LSD growth in 2017), we estimate a $7.00–7.20 EPS range for 2017, modestly below our prior forecast of $7.05–7.25 and $7.25 consensus, which likely had not reflected the ASIX divestiture."

The brokerage indicated that the management's margin expansion forecast of 45–75 bps is on the conservative side pointing out that Honeywell could gain 45 bps from restructuring, 20 bps from currency hedging and 30 bps from disposal mix-up and absence of deal-related expenses.

In the pre-market trading on Monday, the stock shed $0.49, or 0.46 percent, to $106.45.

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Latest Ratings for HON

Dec 2019MaintainsBuy
Nov 2019MaintainsBuy
Oct 2019MaintainsOverweight

View More Analyst Ratings for HON
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